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Senate Judiciary could vote on APR cap this week

WASHINGTON (6/2/09)—The Senate Judiciary Committee later this week could vote on a bill aimed at capping the annual percentage rate for loans of all kinds by amending the current bankruptcy code. S. 257, the Consumer Credit Fairness Act, which is co-signed by Sens. Sheldon Whitehouse (D-R.I.), Richard Durbin (D-Ill.), and Sen. Bernard Sanders (I-Vt.), would alter current federal bankruptcy law by allowing consumers that have been pushed beyond the brink by so-called “high cost” consumer credit card transactions to transition directly to Chapter 7 “fresh start” bankruptcy proceedings. Under the terms set forth by the legislation, “high cost” would mean any loan with terms exceeding the lesser of 15%, plus the yield on 30-year U.S. Treasury securities, or 36%. Bankruptcy laws passed in 2005 made it more difficult for borrowers to qualify for Chapter 7. According to a May 29 American Banker story, the true aim of the bill is to force financial institutions to alter their consumer lending practices, such as how they factor annual percentage rates (APR), by making it harder for the creditors to collect on certain forms of consumer debts during bankruptcy proceedings. Such a move would create a de facto APR cap of 18.5%. A Senate amendment that would have imposed a 15% interest rate cap for credit cards was, in the end, not attached to the recently passed Credit Cardholders' Bill of Rights Act, but Sen. Chris Dodd (D-Conn.) has said the Senate should consider creating an interest rate cap for credit cards. Though S. 257 has been on hold for some time and has not yet been presented to the full Senate, sources told the American Banker that the bill has a good chance of clearing the judiciary panel. Negative public sentiment toward the banking industry could also help move the bill forward, the story said.